All I want for Christmas is for my presents to actually arrive! 

Supply chain issues weigh on the global economy. It has been reported that 90 ships are in queue outside of Los Angeles, and more than 20 ships are backed up outside of Savannah, GA. Orders online that we are accustomed to receiving the next day, they now say will ship in three weeks.

The combination of Covid shutdowns, stimulus payments, and a lack of workers returning to the workforce have created a nightmare of supply chain logistics.

In the meantime, we have the combination of high inflation and dramatically slowing economic growth. The US economy has gone from growing at a rate of 6.5 percent all the way down to 2 percent in a matter of months.

This is a strange economic soup, but the greatest concern is likely inflation. This means that stocks should be the best place to be as they are the best hedge against inflation. We could see an environment where the economy limps along, but the stock market does well.

Inflation hurts consumers and destroys savers but can actually helpinvestors. Even though we are investors, this is not a good situation for the long haul.

To read the full report, please download the PDF.

~Third Quarter 2021

That is a full two-point deduction, which is a little more than simply not sticking the landing. This is a huge disappointment.

The first reading of second quarter GDP came in at 6.5 percent. That would be fantastic under normal circumstances, but there is nothing normal going on right now. Expectations were for 8.5 percent and that had already been lowered from 9 percent.

I have said it a thousand times if I have said it once, but the real indicator of how the market feels is not the headline index return, but what is happening under the surface. While the broad indices have held up, underneath the surface we have had a rotation. Smaller company stocks, as measured by the Russell 2000, have underperformed, as have value stocks. Large-growth stocks have come back.

Investors now go towards these large technology firms when they believe there is no growth to be had anywhere else. These high-fliers have somewhat ironically become today’s defensive stocks. The market has gone from telling us that we are going to grow exponentially to saying we are headed for a recession. The market exaggerates.

What was overly optimistic just a few months ago, has become overly pessimistic.

To read the full report, please download the PDF.

~Second Quarter 2021

Great expectations often lead to disappointment. No, I’m not talking about the Dickens novel – Pip would never disappoint. I’m talking about real life.

We are in the midst of an economic recovery from the reaction to Covid-19, and expectations are getting great. The Fed has said it foresees 6 percent economic growth. When most people hear that they probably celebrate, but when I hear that I immediately think:  We could grow at 5.5 percent and Wall Street will be disappointed.

The Fed has kept the gas pedal to the floor and says they no longer care about short-term inflation but will keep the money loose until people get back to work. At the same time, the administration and Congress are passing relief packages seemingly designed to stop people from going back to work. These policies have the potential to lead to permanent higher unemployment and easy money, which could lead to inflation. The Producer Price Index, which tracks wholesale prices, is up more than 4 percent over the last year, and the recent reading for the Consumer Price Index was 2.6 percent – more than half a percent higher than the Fed’s long-term target.

Is inflation solely a monetary policy issue, or is it the combination of loose monetary policy with big government spending? I don’t know the answer, but this is a question that must be asked.

To read the full report, please download the PDF.

~First Quarter 2021

~Fourth Quarter 2020

Wall Street has seemingly just clued into the fact that it is an election year and a highly charged one at that.

There is a significant probability that with so many people mailing in their ballots, we may not know who the President is on the 3rd of November. That is not going to be good in the short haul.

More important to the market may be the fate of the Senate. If Biden wins and there is a Democratic sweep, the short term may be smooth as this would avoid civil unrest, but then what matters is, what will they actually do? The party platform does not represent what I believe to be the core of the Democratic party, let alone of America as a whole. The question is, who would actually be in charge – the Joe Biden we knew from the Senate, or AOC and her socialist “squad”?

If Trump wins, the long term is more certain, but in the short term we will see riots. The market will not like that. If Biden wins but the Senate remains under Republican control, this could be the best outcome from the market perspective. I’m not saying it is best for our country, that is a political judgment and not my place, but it will mean peace in the short term and moderation in the long term, and Wall Street likes that.

To read the full report please download the PDF.

~Third Quarter 2020